Key Signs You May Be Heading for Bankruptcy and Not Even Know It

bankruptcy

When you hear the word “bankruptcy”, you might have found yourself forming a mental image of a destitute and homeless person begging for money on the street while carrying a sign that says, “Will work for food”. While it might sound a bit too extreme for an outcome of bankruptcy, the stigma surrounding the term itself isn’t entirely unfounded as bankruptcy usually serves as a last resort measure that a person considers only when all other options for repaying the money owed from a creditor have already been exhausted. Thus, you would want to avoid heading straight into bankruptcy as much as possible by knowing some of the key signs that you should watch out for so that you can try your very best to remedy them before it’s too late.

What Are Some of the Key Signs That You May Be Heading for Bankruptcy Without You Even Knowing It?

While it’s completely normal to incur debt from a creditor as long as you can commit to timely repayment of the money that you borrowed from them, you might have taken up too much debt so that you’re unable to get through a single day without thinking of how you can pay your creditor back. As much as you’re putting off the idea of filing for bankruptcy, if your debt has grown to become increasingly unmanageable that you could barely settle it yourself, you would want to identify these key signs that you might be headed for bankruptcy without you even knowing it:

You’re making only minimum payments for your credit card.

Every credit card billing statement has a minimum amount due, but it doesn’t mean that you shouldn’t aim to settle your credit card’s entire outstanding balance on a monthly basis.

  • Unfortunately, some credit card holders pay only the minimum amount due every month as they feel that it’s more convenient for them since it usually costs less than their credit card’s total amount due.
  • When you’re settling only your credit card’s minimum amount due, a huge portion of it goes to interest with the remaining small amount serving as your actual payment to be deducted from the outstanding balance.

You’ve been taking out loans from your retirement account.

Often considered to be a rainy-day fund, the balance of your retirement account shouldn’t have a single deduction in it since you’ll be using it for when you’re required by the law to retire from your job due to old age.

  • However, you might be tempted to take a small loan out of your retirement account if the entire balance of your bank account isn’t enough to repay your debts.
  • While using a retirement account loan to pay back the money that you borrowed from your creditor might seem like a brilliant idea at first, you would have to deal with the need to deposit money back into your retirement account every month as well, which only adds to your existing debt problem.

You’ve been receiving calls from a third-party agency that your creditor had hired to collect your debt.

If you still haven’t paid back the money that you owe your creditor several months after you borrowed from them, they would entrust the collection of your outstanding debt to a third-party agency who might not take to your situation as kindly.

  • A debt collection agent would gently remind you at first over the phone to settle your debts, but if you still bail out on it, they might start making increasingly urgent and sternly worded calls to break you into paying back the money that you owe your creditor.
  • Worse comes to worst, your creditor might file a lawsuit against you that would require your employer to withhold a certain portion of your wages and send it as repayment of your debt.

If you find yourself unable to manage your finances properly you may have begun to feel that you can’t repay your debts on time. This situation only leaves you with more debt that you’re unable to keep up with it, and you might have started swallowing your pride and looking into filing for bankruptcy. However, it would greatly benefit you if you can read the above-listed signs to watch out for if you’re heading into bankruptcy without even knowing it so that you can address and resolve them immediately. To help you decide more clearly on what to do when faced with insurmountable debt, you should talk to a lawyer who can assist you in mitigating the ill effects brought about by those signs that might be telling you to file for bankruptcy and what you would need to do in case bankruptcy is the only solution left for you to wipe your slate full of debt clean.

Veronica Ferguson is equipped with more than 20 years of experience as a businesswoman. She is currently writing her next big project and hopes her pieces would impart vital knowledge to her readers. Veronica is a family woman, and is often with her family during her free time.

Disclaimer: The information presented below is meant to serve as a guide on some of the key signs of bankruptcy that you may not know about, and shouldn’t be interpreted as legal advice. If you want to find out more about how you can file for bankruptcy, you would have to contact a licensed bankruptcy attorney who can guide you throughout the entire bankruptcy filing process.

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Is Owning A Credit Card For Necessary You?

Weigh the advantages and disadvantages of owning a credit card, before signing up for one!

WHY YOU MIGHT NEED IT

Here are some of the convincing points that highlight how useful owning a credit card is:

1. Practical for Globetrotters

Singaporeans desire to discover the world’s wonders beyond its concrete jungle. As travelling became increasingly convenient nowadays, there are several options for payment. One is through credit. There are three primary reasons why travelling with a credit card is practical.

Firstly, travel arrangements such as room reservation and car rental are usually done with a credit or debit card. Secondly, it adds a proof of financial capacity when trying to acquire a Multiple Entry Visa in some countries. Lastly, there is a sense of relief to know that you always have access to emergency funds while travelling.

Image Credits: pixabay.com

Image Credits: pixabay.com

2. Protection against Crooks

I was once robbed when I was young. I let my guards down as I was accompanied by my friend. After watching a fantastic film, I noticed that my wallet was missing. My friend and I frantically searched for it for hours. I even left my contact details to the cinema staff, but I had no luck! I had to accept that a decent amount of cash was gone. The unfortunate ordeal applies to my house keys as well as my debit card. To prevent identity theft, I had to immediately contact my bank. The process took two days.

If I only carried a credit card, the gravity of the situation may lessen. Credit cards are not tangible as cash. It is also not linked to your savings account. Many establishments ask for further identification for significant purchases. Furthermore, you can simply report a lost card thru a phone call.

3. Essential for Good Credit Report

Gone are the days when you solely think about budgeting your allowance. Welcome to the adult world whereby property owners and automotive establishments judge you by your credit report. Some of the best interest rates are offered to the people who carry impressive credit report.

It takes no genius to realize that using your credit card sensibly builds a good credit report. If you are suffering from a bad one, it is time to rehabilitate through a realistic financial plan.

WHY YOU DO NOT NEED IT

Here are some of the convincing points that highlight how owning a credit card is a recipe for disaster:

1. Tempting for Impulsive Buyers

Whether you believe it or not, we all have a control over our shopping habits. You can either be a frugal shopper who regularly reads consumer reviews or an impulsive shopper who regularly submits to tempting offers. For a person who has a difficult time in resisting a purchase, equipping yourself with a credit card may be harmful for your finances.

Using a credit card diminishes the sense of awareness as you are spending the money that you do not have. You are likely to shop based on your wants than on its costs. On the other hand, shopping with cash may allow to contemplate about your purchase. You buy what you can only afford to pay for now.

2. Solely for Smaller Purchases

If your primary purpose for owning a credit card is to cover your fondness for retail therapy, owning a credit card is not necessary. It is a good idea to save up for purchases costing S$250 or less. The delayed gratification allows you to contemplate about the coveted product.

Swiping a credit card is helpful for bigger purchases that you want to pay in several chunks such as purchasing a new laptop as well as financing your child’s education.

3. Unnecessary for Savvy Planners

One of the famous tests involving Typology highlights the dichotomous nature of people who are calculated and people who are spontaneous. The latter plans out several areas of their lives before jumping into a decision. While, the former enthusiastically goes with the flow.

I, for one, plan out my entire budget for the month as well as the funds that will go to savings and the emergency fund. Setting up an emergency fund entails keeping at least 6 months’ worth of your salary. If you have a strong emergency fund, it is unnecessary to have a credit card for emergencies.

Image Credits: pixabay.com

Image Credits: pixabay.com

Sources: 1 & 2

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Newbie’s Guide To Singapore’s Credit Bureau

The Credit Bureau (Singapore) is a principal credit consumer agency, which has the most comprehensive industry uploads originating from all the major financial institutions and retail banks. Credit Bureau (CB) is a joint venture between the “Infocredit Holdings Pte Ltd.” and “The Association of Banks in Singapore”.

The Monetary Authority of Singapore’s (MAS) vision to improve the public’s risk management capabilities is in lined with the holistic embodiment of CB. How is this so?

The Banking Act allowed the members of CB (e.g., credit card companies) to reveal credit-related data for the strong purpose of analyzing the creditworthiness of existing and potential customers. Simply, CB presents a “complete risk profile” of a particular customer to a particular credit card provider.

This complete risk profile includes a tangible number called the Credit Score. The Credit Score is an independent assessment of an applicant, which guides the decisions of the lenders. It is gauges the likelihood of repayment as well as the probability of going into default. You must pay close attention to your Credit Score if you are planning to apply for any forms of loans or credit. For instance, you and your spouse need good Credit Score to successfully take up an educational loan for your children.

Image Credits: pixabay.com

Image Credits: pixabay.com

Say your Credit Score has been in its low point for the past 2 months. Wary not, my friend. You may still rejuvenate your credit history as the reports from the CB manifest your record on promptness over a 12-month period. You read that right! You have the ability to technically “undo” a poor credit history due to late payments and unmet minimum repayment sums. However, paying your monthly credit card bills and loan installments on time must be your top priority for the next 12 months. Doing so will only clean up a section of your credit report known as the “Account Status History”.

Hope fades when your problems go deeper than late repayments. Serious financial situations such as bankruptcy proceedings and debt management programs will remain reflective on your credit report. You have to be careful to secure a pleasant future!

Sources: 1, 2, & 3

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The Perils of Short-Term Business Loans

It’s almost inevitable that life will have the occasional financial pinch. Having to meet financial deadlines is not just reserved to everyday life bills. Many times business owners, especially small business owners, are faced with the pressure of meeting deadlines for vendor invoices, inventory and payroll. When faced with tight financial situations, some business owners consider short term loans as a way to keep the ship afloat.

That being said, these loans come with their own unique risk profile that you need to be aware of lest you get trapped in the murky waters of toxic and unending loans. The short-term nature of these loans makes the borrowing process a little bit difficult for borrowers who have complex and below par credit histories. Before going for these loans, you must conduct a cost-benefit analysis to see whether borrowing on a short-term basis is more beneficial to a conventional long-term loan. Below are some of the perils of short-term financing for businesses.

Unfavorable Renewals

Though most short-term business loans are meant to paid off quickly, there are instances when you need additional time for repayment and this can put the lender in a controlling position making him sort of dictate the terms on which the contract is to be renewed. The new repayment plan may be less favorable to you because after all, the lender is in business. The newly accumulated debt can potentially push you into not only into business bankruptcy but also personal bankruptcy, which comes with its own set of perils.

Reputational Risks

If you rely on short-term loans as a business, investors may be worried or even turned off when they review your financial history. Most of the times, short-term loans hold on to specific asset classes as security and this give a picture that your business is not financially stable and is teetering on the edge of collapse. Also, the manner in which you handle your short-term financing can affect your ability to secure long-term financing in future.

Less-Than-Required Financing

Compared to traditional loans, short-term loans are much smaller. The reason behind this is that these loans are meant to be realistically paid off in a few months or year. If this is to happen, the principal plus the interest must be within the business financial radar to repay. If what you need is just a small loan to plug in a gap in expenses, this can work well with you, but if you want to replenish larger inventory items or boost your production so as to meet a deadline, this may not be enough.

Relatively Higher Interest Rates

The cost of short-term borrowing attracts higher interest rates compared to long-term financing. In the short run, the impact of these interest expenses may not be strongly felt, but when you look at your books a few years down the line, the cost may even double or triple that of bigger long-term loans. For instance, if the loan comes at a cost of about 25%, what this means is that your business must generate a rate of return higher than the cost of capital for the short-term loan to make sense.

Difficulties in Refinancing

As a business owner, having more flexibility is a great deal for you. This is because it opens up options making you adaptable to unforeseen circumstances or emergencies. However, refinancing short-term debt with another short-term facility can narrow your options. When you refinance, the new loan may potentially prevent the existing balance from getting low enough to enable you qualify for a credit facility by another lender. This may not be much of a problem if you are contented with your existing lender, but it can limit you if you want to cross over and shop for more competitive deals.

What Alternatives Do You Have?

Instead of focusing most of your energies on short-term financing where your bargaining power is somewhat limited and compromised by the urgency of your need, you can explore refinancing with long-term debt. This will save you stress and lower the frequency or size of your payments. Getting a line of credit can also be an option because then, you only pay the interest on the money you require and the capital is always available should you need it.

Though it is tempting, play your cards well and closely analyze the fine print before giving a short-term loan deal an okay.

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